Diamonds represent an important commodity with an annual world production value of approximately $13 billion with another $63 billion in annual global sales of diamond jewelry. Roughly 49% of diamonds originate in central and southern Africa with significant sources discovered in Canada, India, Russia, Brazil and Australia. Historically, the De Beers Group has held the distinction of the world's larges diamond miner. De Beers maintains an estimated 35-45% market share but their dominance is muted in recent years resulting in increasing competition. Some 80% of rough diamonds pass through Antwerp while approximately 80% of the finished products are sold in the U.S. Some 26 registered diamond bourses comprise the World Federation of Diamond Bourses where wholesalers and retailers may buy gems and subsequently prepare them for final retail sale. Diamond prices vary as a function of the gem's weight (measured in carats), color, clarity, cut and shape among others, as well as dynamic market factors. They are assayed and valued largely by automated, rather than manual, methods. The Gemological Institute of America (GIA) is a recognized organization that grades diamonds. But there is no structured derivatives market either on an over-the-counter (OTC) or exchange-traded basis for diamonds today.
In the past, products such as oil, gold, and corn, have been commoditized and standardized for trading. Diamonds have not, primarily for the reason that many would argue that each diamond is unique and impossible to commoditize because it has been observed that diamonds with identical gemological characteristics look entirely different from each other. Some of these diamonds with identical gemological characteristics look more spectacular than others due to the way that these diamonds are cut (cut quality). These visual differences typically fuel the argument that diamonds cannot be standardized because of pricing discrepancies between gemologically identical diamonds with visible visual differences.
One aspect of the present invention combines gemological and objective analysis of the diamonds, particularly with respect to light and optical behavior, and thereby eliminates these visual discrepancies and produces a fungible standard for classifying diamonds that can be used to securitize or commoditize diamonds. Diamonds bundled under the present invention would not only be gemologically identical, but also exhibit substantially identical optical characteristics such that they would be visually indistinguishable by anyone. Thus, consistent pricing considerations for fungibility can be utilized. Alternatively, the invention can also be used to bundle gemologically dissimilar diamonds with substantially similar monetary values to create standardized fungible baskets. In another alternative, the invention is directed to a basket and method of creating a basket of different gems (i.e., a combination of any of 1 or more collections of diamonds, rubies, sapphires and emeralds) with each created basket having a substantially equivalent monetary value.
In brief, one embodiment of the invention would be a method for standardizing a collection of diamonds. Another embodiment of the invention includes a method of trading a commoditized basket of diamonds. Yet another embodiment of the invention is simply a basket of fungible commoditized diamonds. Still another embodiment of the invention is an Exchange Traded Fund (“ETF”) comprised of a standardized basket of diamonds and a cash component. Still another embodiment of the invention are future contracts, equity products, options and other derivative products based on standardized basket of diamonds created under the present invention.